The Pensions Regulator

Guidance for trustees

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Special situations

Occasionally, trustees may have to deal with unusual events such as wind ups or situations arising from corporate activities.

This section of the guidance describes your duties as a trustee in the following situations:

• The pension scheme starts to wind up
• There is an event that has a detrimental effect upon the scheme
• The pension scheme is in surplus
• The pension scheme is operating across EU borders

The pension scheme starts to wind up

Pension schemes may be wound up for a variety of reasons. The most common is when an employer becomes insolvent and stops making contributions to the scheme. In this situation the trust deed and rules will usually state that the scheme should be wound up. You must check the trust deed and rules if you are unsure about whether the scheme should be wound up.

Trustees' duties

As a trustee, you are responsible for ensuring that the scheme assets are identified and protected, and that the wind up is completed as quickly as possible. The government published a report in 2006 (Speeding up winding up occupational pension schemes) that stated it was reasonable to expect that the key activities of winding up will be completed within two years. The key activities include:

• identifying and obtaining any debt on the employer;
• identifying individual members' share of the assets;
• securing pensioner benefits;
• conducting a final actuarial valuation of the scheme; and
• issuing option letters to members.

During a scheme wind up members may be feeling anxious and it is important that you keep them informed about what is happening. The law states that you must advise them that the scheme has started to wind up within one month of taking the decision and then update them of progress annually thereafter.

Most of the duties we have outlined in this guide continue to apply even if a scheme is being wound up. There are also specific duties and powers that come into play when a scheme is winding up. For example, you have a duty to tell the Pensions Regulator:

• that the scheme has started to wind up;
• after the scheme has been winding up for two years provide and initial report and thereafter annually; and
• as soon as reasonably practicable that the scheme has wound up.

Records must be kept of your decision to wind up the scheme.

We will be consulting on our approach to regulating schemes in wind up – the guidance will include good practice examples. 

See the Trustee toolkit - we've issued a supplementary e-learning module, published as an additional learning tool to help trustees understand the winding up process. This is the first of a suite of three and covers winding up a DB scheme with a solvent employer. Further modules will cover winding up a DB scheme with an insolvent employer, and winding up a DC scheme.

Insolvency

If the employer becomes insolvent, an insolvency practitioner, or the official receiver acting as the receiver or liquidator, is likely to be appointed to act for the employer. By law they must tell you, the Pensions Regulator and the Board of the Pension Protection Fund that they have started to act for the employer.

In this situation, the Pensions Regulator has the power to appoint a statutory independent trustee from our register of independent trustees. Although the existing trustees will still be required to carry out their duties, the statutory independent trustee will take over the exercise of their discretionary powers.

Where you are a trustee of scheme with a defined benefit element and your employer suffers an insolvency event your members may be entitled to compensation from the Pension Protection Fund. (The scheme will pay additional levies to cover the cost of the fund.) You will need to check whether you satisfy the qualifying conditions for entry.

There is an event that has a detrimental effect upon the scheme

As a trustee you should establish procedures for monitoring the possibility of an event occurring that has an actual or potential detrimental effect upon the pension scheme. The section 'working with the employer' tells you how to go about this. It is a complex area and trustees should avoid potential conflicts of interest and seek appropriate professional advice to help them.

The event may be one that weakens the employer's ability and willingness to support the pension scheme (its covenant) and/or affects the ability of the scheme to meet its liabilities. If an event is identified you should take appropriate action to seek mitigation for its detriment effect. Examples of mitigation may include obtaining additional cash or contingent security for the scheme.

Examples of the type of event that may be detrimental to the scheme include:

• the replacement or merger of a participating employer;
• change in control of the employer – for example, a change of parent company;
• a corporate event that could reduce the cash flow of the employer – for example, an increase in debt;
• a return of capital – for example, dividend payments or share buy backs;
• compromise agreements – ie, where the trustees agree with the employer to reduce the debt  amount being paid to the scheme;
• apportionment of the schemes debt – for example, where the scheme rules modify the amount of the pension debt that would otherwise be due on the withdrawal of an employer from a multi-employer scheme; and
• an arrangement that has the result of preventing a section 75 debt from triggering – for example, 'abandonment' of the scheme.

If a detrimental event of this type is identified trustees should be aware that the Pensions Regulator expects the employer to make a clearance application. Our guidance on clearance provides further information on detrimental events, mitigation and the clearance process.

Trustees should also be aware that some events may be notifiable events.

Our guidance on abandonment of DB pension schemes tells you more and you may find the information on multi-employer withdrawal useful.

The pension scheme is in surplus

A scheme is in 'surplus' if its assets are more than its liabilities.

If an ongoing defined benefit scheme is in surplus the employer may ask for the surplus to be paid to him. Trustees are only able to authorise a payment to an employer if they have obtained a written valuation from the actuary and this shows that the scheme is funded to above full buy-out level. If as a trustee you agree to the employer's request, the law requires you to notify the members of the potential payment and inform the Pensions Regulator when the payment is made.

A surplus may also arise in a defined contribution scheme when all the liabilities in respect of a member, beneficiary or his estate have been secured by the purchase of insurance policies, or paid in full. This surplus may be paid to the employer without the need to notify the members or the regulator.

The scheme is operating across EU borders

Pension schemes located in one EU member state must apply for authorisation and approval to accept contributions from employers employing members who are subject to the social and labour law of another EU member state.

As a trustee of a scheme with its main administration in the UK, you need to decide whether you have European members; that is a member who is working in another EU state (but who is not a seconded overseas). If you do, and you want to accept contributions into the scheme in respect of them you will need to apply to the Pensions Regulator for authorisation and approval for your scheme.

Our guidance on EU cross-border schemes contains more information on when you need to make an application.

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